8-K: Shentel to Sell Tower Portfolio to Vertical Bridge for $310.3 Million

Shenandoah Telecommunications Company (Shentel) has agreed to sell its tower portfolio and operations to Vertical Bridge for $310.3 million in cash.

Summary

• Shentel has entered into an agreement to sell its tower portfolio to Vertical Bridge for $310.3 million in cash.
• The tower portfolio consists of 226 sites, including 218 macro cellular towers and 8 small cell sites.
• The initial closing is expected in late March 2024, with subsequent closings for remaining sites as conditions are met.
• Vertical Bridge will manage all tower sites and receive related financial benefits from the initial closing date.
• Shentel expects to pay up to $10 million in income taxes in 2024 due to the gain on the sale.
• The tower portfolio generated $18.6 million in revenue, $9.5 million in operating income, and $11.6 million in Adjusted EBITDA in 2023.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the strategic sale of assets to fund growth in the fiber business and the positive outlook for the company's financial flexibility. However, there are some risks associated with the transaction and the Horizon Telcom acquisition.

Positives

• The sale will provide Shentel with additional growth capital to support the expansion of its Glo Fiber business.
• Shentel believes its capital structure is well-balanced and will provide future financial flexibility after the transaction and the Horizon Telcom acquisition.
• Vertical Bridge views the towers as high-quality assets with available capacity for additional tenants.
• The geographic concentration of the portfolio offers a unique opportunity for future deployment of existing and new technologies.

Negatives

• Shentel will incur up to $10 million in income taxes in 2024 due to the gain on the sale.

Risks

• The transaction is subject to customary closing conditions, and the initial closing may not occur on time or at all.
• Subsequent closings for remaining sites depend on meeting specific conditions.
• The expected savings and synergies from the Horizon Transaction may not be realized or may take longer or cost more than expected.
• Changes in economic conditions, regulatory requirements, technologies, competition, and other factors could affect the outcome.

Future Outlook

Shentel plans to use the proceeds from the sale to support the expansion of its Glo Fiber line of business to approximately 600,000 homes and business passings by the end of 2026. The company believes its capital structure is well-balanced and will provide future financial flexibility.

Management Comments

• The proceeds from the sale of our Tower business will provide Shentel with additional growth capital to support the planned expansion of our Glo Fiber line of business to approximately 600,000 homes and business passings by the end of 2026.
• With the expected closing of this Transaction and the previously announced $356 million of committed financings supporting our pending acquisition of Horizon Telcom, we believe our capital structure is well balanced and will provide future financial flexibility, said Shentels President and CEO, Christopher E. French.
• We are pleased to add these purpose-built broadband telephony towers to our growing portfolio. The towers are high quality assets with available capacity for additional tenants and are located in difficult areas to build new towers due to zoning restrictions and terrain challenges. The geographic concentration of the portfolio offers a unique opportunity for future deployment of existing and new technologies, said Vertical Bridges President and CEO, Ron Bizick.

Industry Context

This transaction reflects a trend of telecommunications companies divesting tower assets to focus on core services like fiber expansion. Vertical Bridge, as a major infrastructure owner, is expanding its portfolio to capitalize on the growing demand for wireless infrastructure.

Comparison to Industry Standards

• The sale of tower assets is a common strategy for telecommunications companies to raise capital and focus on core business operations, similar to transactions by companies like Crown Castle and American Tower.
• The valuation of the tower portfolio at approximately 26.4 times its 2023 operating income is within the range of recent transactions in the telecommunications infrastructure sector.
• Vertical Bridge's acquisition strategy aligns with its position as a major player in the communications infrastructure market, similar to other large infrastructure REITs.
• The focus on high-quality assets with available capacity for additional tenants is a common theme in the tower industry, as companies seek to maximize returns on their investments.

Stakeholder Impact

• Shareholders will benefit from the increased financial flexibility and growth potential of Shentel.
• Employees may see changes in their roles as Shentel shifts its focus to fiber expansion.
• Customers of Shentel's Glo Fiber business will benefit from the planned expansion.
• Vertical Bridge's customers will gain access to a high-quality portfolio of tower sites.

Next Steps

• Shentel will proceed with the initial closing of the transaction, expected in late March 2024.
• Subsequent closings will occur as closing conditions are met for remaining sites.
• Shentel will utilize the proceeds to expand its Glo Fiber business.
• Vertical Bridge will manage the acquired tower sites and seek to maximize their potential.

Key Dates

Keywords

tower portfolio, telecommunications, vertical bridge, shentel, asset sale, infrastructure, fiber expansion, colocation, wireless, towers